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Kennametal (KMT) Exhibits Strong Prospects, Endures Risks

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Kennametal Inc. (KMT - Free Report) stands to gain from its presence in diverse end markets, which allows it to neutralize risks associated with a single market. Some of KMT’s key end markets include automotive and machine tool, and farm machinery industries plus aerospace among others. In the quarters ahead, strength in KMT’s end markets, including energy, earthworks, aerospace and general engineering, is likely to drive its performance.

KMT’s innovation capabilities, operational excellence and solid product offerings have been aiding it for a while in driving profitability and maintaining a healthy margin performance. For instance, in third-quarter fiscal 2022 (ended Mar 31, 2022), KMT’s gross profit grew 9.6% year over year while the margin increased 110 basis points (bps) on the back of a strong operating leverage.

Kennametal focuses on rewarding its shareholders through dividend payments and share repurchases. In the first nine months of fiscal 2022, KMT used $50.1 million for paying out dividends to its shareholders and bought back shares worth $50.5 million. The board of directors approved a share buyback worth $200 million in August 2021, which is valid for three years and will be funded by KMT’s operating cash flow.

However, challenges related to escalating costs and expenses pose a concern. In the first nine months of fiscal 2022, KMT’s cost of sales grew 5.8% year over year and operating expenses expanded 5.7%. In third-quarter fiscal 2022, operating income suffered from $13 million headwinds from high raw material costs.. Cost inflation is likely to continue affecting its margins and profitability in fiscal 2022 (ending Jun 30, 2022).

Kennametal’s global presence exposes it to various environmental laws and regulations in the countries where it operates. Also, the entity remains vulnerable to foreign currency woes. Adverse forex adversely impacted sales by 4% year over year in the fiscal third quarter. In the quarters ahead, KMT's overseas business might be depressed by a stronger U.S. dollar.
 

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In the past three months, this currently Zacks Rank #3 (Hold) stock has dipped 5% compared with the industry’s decline of 13.7%.

Zacks Rank & Stocks to Consider

Some better-ranked companies from the industrial products sector are discussed below:

Applied Industrial Technologies, Inc. (AIT - Free Report) presently sports a Zacks Rank #1. AIT delivered a trailing four-quarter earnings surprise of 25.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AIT’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022) in the past 60 days. Its shares have rallied 5.8% in the past three months.

Roper Technologies, Inc. (ROP - Free Report) presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 2%, on average.

In the past 60 days, ROP’s earnings estimates have increased 1.2% for 2022. The stock has dipped 3% in the past three months.

IDEX Corporation (IEX - Free Report) is presently Zacks #2 Ranked. IEX’s earnings surprise in the last four quarters was 2.8%, on average.

In the past 60 days, IEX’s earnings estimates have increased 3.4% for 2022. The stock has gained 6.4% in the past three months.